When optimising various business verticals, the SCOR – supply chain operations reference – model, is vital. It’s a way of analysing and improving systems that covers five different areas: plan, source, make, deliver and return. Most of the time that businesses use this system to reduce costs, they focus on the downstream aspects, forgetting there’s ways to save money and improve efficiencies in the logistics stage.
It’s an understatement to say that this has been a tumultuous time for anyone shipping goods across the world – as covid-19 highlighted the fragility of global supply chains. And now shipping prices have skyrocketed, with the cost of containers going up by about 1,000% in some instances. Climates like the one we’re currently experiencing, suggest that instead of shipping and logistics being an afterthought, it should be front and centre when looking to optimise costs.
However, as this is such a complicated space, not least at present, it makes sense to find a partner that will competently supply finished goods, as well as creating and managing a resilient supply chain as part of the service.
When navigating a complex and uncertain landscape, supply partners can absorb responsibility and alleviate stress in ways that vendors and manufacturers cannot. A supply partner managing the process holistically will create efficiencies across the supply chain, even during tumultuous times. These efficiencies help to keep costs and resource levels stable. This something to be wary of when service companies offer unbundling and the ‘pay for what you use’ model in return for greater commercial control.
Although encouraging customers to choose which service or services they require, and the frequency of said service appears to place the customer firmly in the driving seat, this model does not fare well when markets encounter fluctuations or headwinds. Navigating turbulence with a disparate, self-led process very rarely creates a sustainable and cost-effective option that offers long-term durability. Especially when there are so many unknown and convoluted variables to consider.
Necessary logistical considerations
Whenever businesses move goods, charges are incurred. To effectively optimise the cost of freight-in, you need to comprehensively understand what affects these costs and why. While the following represent some of the primary considerations, it is by no means an exhaustive list.
Firstly, there’s the cost of fuel. Some companies include this in their contracts. Consequently, the mode of transport you use can play a huge part in the final cost. To avoid incurring expensive fuel charges some companies will opt for air, sea or rail – instead of land. However, this choice could also be down to the type of product you’re moving – anything with a shorter shelf life or that was created with a fast turnaround time needs to be delivered via the fastest route possible – and therefore is the most expensive. Sometimes these kinds of price fluctuations can’t be avoided, so instead you may have to consider:
Trade balance. More containers make their way from the East, where goods are manufactured, over to the West for consumption. This means that there’s more demand for this leg of the journey. However, one way that companies shipping goods can get around this imbalance to reduce costs is by increasing the volume of what they’re shipping while reducing frequency or by choosing one of the cheaper transport modes.
Direction of travel, the day you choose to ship goods on can also have ramifications, as there are peak and off-peak times for freight. Many shops aim to have new products in-store on Thursday, in time for the weekend – that’s why, instead, Friday and Monday are often the cheapest days to send goods. Hence, picking off-peak times in advance can reduce price fluctuations.
Freight provider roster reduction. Think about it this way, as with a lot of business partnerships, the longer the contract, the lower the prices can be negotiated. This will also be the case for the companies you are dealing with – meaning that if you’re providing a long-term, reliable supply of goods, they in turn will be able to lower their costs and pass it on to you.
Direct impacts on freight costs such as weight and volume. The heavier the goods, the harder they are to transport. However, there’s more to this than meets the eye. Companies can design their products with shipping in mind in order to maximise the space available, whether that’s on pallets or via shipping containers. Kevin Murphy, a hair brand, created rectangular shampoo bottles in order to fit more into boxes, for example. Identifying efficiencies in design and packaging at the product conception stage is another advantage to working with an experienced supply partner.
Likewise, dunnage, or protective packaging, can add a lot of volume and therefore more resources needlessly, which comes with negative environmental repercussions. Some brands are known for over-protecting their goods. By understanding the intricacies of the logistics process – for instance, how many times it has to change hands and how intensive each of the journey legs are – companies can reduce the amount of extra packaging, bringing down costs without raising the risk of damage.
Finally, there’s administration and regulations side. With up to 200 documents needed for a single shipment, this can be an arduous, time-consuming and resource-intensive task. And the repercussions if mistakes are made tend to be severe – any delay could result in loss of reputation, revenue or even future contracts if it’s a repeated issue. In addition to shipping regulations, companies must also rigidly adhere to government regulations, which can include aspects like carbon emissions or banning driving at night. With such high stakes, it’s imperative not to look for quick wins that will have longer term ramifications. Continuously minimising inefficiencies across the supply chain is dependent upon firstly protecting your company from costly mishaps that arise from inexperienced handling. Due to this, finding a supply partner with a global footprint that brings experience in each of the markets you work in is advisable.
Stabilise your process for the future
Globalised supply chains bring about all kinds of benefits for companies, from cheaper labour to proximity to the raw materials they need to make their goods – however, tariffs can be the downside, adding costs when shipping the finished item to its destination. As the world has seen, the tariff landscape is erratic – with the US-China trade war a case in point. With up to 30% of the cost of shipping items sometimes down to the customs charge, it pays to find expertise on understanding and how best to navigate this landscape and understand the ramifications of developments as they happen. This requires constant monitoring and thorough understanding of the end-to-end journey.
From which direction you are moving goods in, to whether it has been designed with efficiency and effectiveness in mind – it’s easy to overlook or bypass something that could optimise your freight costs. Indeed, many variables depend on the industry or even region.
It is critical for companies to partner with those who understand the intricacies of international logistics. The current freight and shipping challenges are temporary, but essentially every supply chain, particularly one with a global footprint, will require extensive resource for proper management. Therefore, establishing long-lasting relationships with those who can navigate the ins and outs of this complicated landscape will provide benefits far into the future – by ensuring operations run more smoothly and predictably.